Global stocks rally as Fed sticks to cautious script

Global equities extend rally as risk appetite deepens

Global risk sentiment remained robust on Friday, with both the S&P 500 and Nasdaq hovering near all-time highs following a powerful overnight rally. Asian markets followed suit, led by Japan’s Nikkei 225, which broke decisively above the 40,000 mark for the first time. The index’s surge reflects a combination of AI-driven optimism, solid corporate earnings, and supportive global risk flows.

Despite geopolitical risks and Federal Reserve caution, investors continue to lean into equities, betting that falling inflation and resilient growth will sustain the rally through the summer.

Fed signals “wait-and-see” but markets price September easing

Federal Reserve officials maintained a unified tone this week: no rate cut is expected in July, but easing later in the year remains possible. Policymakers stressed the need for more data, especially regarding the inflationary impact of new US tariffs and ongoing labor market conditions.

Boston Fed President Susan Collins and Minneapolis Fed President Neel Kashkari both emphasized the importance of caution, citing limited data between now and the next FOMC meeting. Fed Vice Chair Michael Barr warned that tariffs pose a dual threat—risking both higher inflation and slower growth.

While the official message remains “too soon to cut,” futures markets continue to price in an 85% probability of a rate reduction in September, especially if upcoming inflation data shows further softening.

Focus turns to PCE inflation and tariff countdown

The release of the US Personal Consumption Expenditures (PCE) inflation report will serve as a critical checkpoint for Fed watchers. Economists expect headline PCE to rise to 2.3%, with core PCE seen at 2.6%. A weaker-than-expected print could lock in expectations for September easing.

Simultaneously, attention is turning to the rapidly approaching July 9 deadline for the expiration of Trump’s 90-day tariff pause. Without new trade deals, the US is set to reimpose country-specific reciprocal tariffs, maintain 30% levies on Chinese goods, and implement up to 50% duties on EU imports.

Equities have rallied nearly 1,200 points since the pause began in April, as markets bet on a possible extension. However, trade risks remain a key source of downside volatility if no breakthroughs materialize in the coming days.

Global trade diplomacy: Progress with China, EU outlook uncertain

Trade talks between the US and China produced a breakthrough, with Beijing agreeing to increase rare earth exports in exchange for Washington easing select countermeasures. The Geneva agreement marks an important step in de-escalating tensions, though US officials remain focused on finalizing similar deals with at least 10 other major trading partners before July 9.

Meanwhile, EU-US trade relations remain tense. European Commission President Ursula von der Leyen warned that Brussels is preparing for both a breakthrough and a breakdown, stating, “All options remain on the table.” The EU continues to push for fairer terms after the US concluded a fast-track deal with the UK.

Middle East calm weighs on oil, tanker rates collapse

Energy markets remain under pressure as Middle East tensions ease. Following the Israel-Iran ceasefire, tanker rates on the key Saudi Arabia-to-China shipping route plunged over 50% this week to around $35,281 per day. Goldman Sachs now estimates the market-implied risk of a Strait of Hormuz disruption at under 4%, down sharply from 15% earlier this month.

Crude prices stabilized above $65 per barrel for WTI, with Brent near $68, as the American Petroleum Institute reported a larger-than-expected drawdown in US inventories.